The overall positive expectations of the global economy, including the widely praised reopening of China’s economy, may provide a positive boost to the markets as energy prices are slowing down worldwide.
The crypto market has suffered again after lender Genesis, a Digital Currency Group affiliate, filed for bankruptcy on the premise that it owes more than $3.4 billion to its creditors. It looks like another breach of the crypto market infrastructure haul that may bring it to the edge of another downturn.
A recent revival of the risky assets after the crowd’s sentiment rose extremely positive is slowly coming to a halt. The US stock market is slowing down ahead of the Federal Reserve (Fed) meeting on January 31 – February 1 as the monetary watchdog seems to be showing the market no mercy while continuing to insist on further monetary tightening in order to tackle high inflation.
Digital assets also gained some traction in recent weeks as Bitcoin prices have surged by 38.2% since the beginning of this year. But the major coin is showing a slowdown with some signs of a downside reversal. Coinshares reported that the digital asset recorded a sum of $37 million in inflows during the third week of January 2023. However, these inflows would hardly support the market to go up further as inflows were mostly seen in Europe at $24 million, BTC-related crypto assets at $5.7 million, and ETH-related crypto assets at $4.2 million. More than 95% of the inflows into the United States, or $25.5 million, went into short-Bitcoin products. This is a clearly bearish sign that may drag the major digital currency down next week after the Fed continues with its monetary tightening amid still hawkish rhetoric.
The European Central Bank (ECB) continues to follow the Fed by hiking interest rates at a greater-than-expected pace. ECB Governing Council member, Olli Rehn, said he sees ground for significant interest rate increases this spring, while ECB governing council member, Klaas Knot, said two 0.5% interest rate hikes are expected to be decided on during the next two meetings in February and March, with a possible continuation of interest rate hikes in May and June.
The crypto market seems to be reluctant towards major bankruptcies and is therefore focusing primarily on leading cryptocurrency operations. The risk of bankruptcies is seen to be contentiously high this year, so a hit-and-run strategy is mostly being exercised by market players. Moreover, retail investors are quite disappointed after the collapse of the fourth largest FXT crypto exchange that created an $8 billion hole in its clients’ pockets.
Nevertheless, there is some light at the end of the tunnel in the form of optimism surrounding the European economy. German Bundesbank President, Joachim Nagel, suggested that the ECB could bring down inflation to the target of 2% in late 2024 or in early 2025, without a recession. Analysts surveyed by Consensus Economics say that the Eurozone will likely avoid a recession this year with a minor growth of 0.1% in 2023. This positive consensus emerged after Germany, Europe’s most powerful economic engine, performed better than expected in Q4 2022 and avoided slipping into contraction.
The overall positive expectations of the global economy, including the widely praised reopening of China’s economy, may provide a positive boost to the markets as energy prices are slowing down worldwide, including Europe. The most important factor is that the second major source of inflation, food prices, are also slowing down. So, there is a great chance that the global economy will continue to expand despite a slowdown in the manufacturing industry, driven by improving exports worldwide. This may be good news for the crypto world too as Bitcoin prices may survive above $17,000 per coin in the nearest future at least. This may squeeze bitcoin prices in the narrow range with the upper margin at $21,000 per coin.
Anyway, the Fed’s statements on February 1 are likely to direct risky asset markets, including cryptocurrencies and may put pressure on current prices, dragging Bitcoin down toward the support at $17,000 per coin.
Disclaimer: The opinions and views expressed in this article are solely those of the author and are not necessarily shared by Coinspeaker. We recommend you conduct the necessary research on your own before any investment and trading move.
Iván is the Head of Analytical Department at Metadoro.